In this March 19, 2015 photo, security guards scuffle with protestors angry about failed investments with Hunan Bofeng Asset Management Ltd. outside of a branch of the Industrial and Commercial Bank of China in Changsha in southern China's Hunan province. Thousands of Chinese savers who entrusted money to an informal finance industry that operates with little government oversight are suffering painful losses as borrowers default and real estate and other ventures fail. (Chinatopix Via AP) CHINA OUT
(The Associated Press)

In this March 19, 2015 photo, security guards try to keep protestors angry about failed investments with Hunan Bofeng Asset Management Ltd. out of a branch of the Industrial and Commercial Bank of China in Changsha in southern China's Hunan province. Thousands of Chinese savers who entrusted money to an informal finance industry that operates with little government oversight are suffering painful losses as borrowers default and real estate and other ventures fail. (Chinatopix Via AP) CHINA OUT
(The Associated Press)

In this March 19, 2015 photo, protestors angry about failed investments with Hunan Bofeng Asset Management Ltd. demonstrate outside of a branch of the Industrial and Commercial Bank of China (ICBC) in Changsha in southern China's Hunan province. Thousands of Chinese savers who entrusted money to an informal finance industry that operates with little government oversight are suffering painful losses as borrowers default and real estate and other ventures fail. The sign at lower center reads, "ICBC and Bank of China are cheater banks. They sell fraudulent products that take ordinary people's hard-earned money," and the sign at upper center calls for the removal of an official. (Chinatopix Via AP) CHINA OUT
(The Associated Press)

BEIJING – Fan Xiaolin, an engineer in Changsha in central China, thought he was safe when he deposited his family's savings of 800,000 yuan ($130,000) in a private finance company he said was recommended by employees of state-owned Bank of China.

The company, part of an informal industry of lenders and investment managers that operates outside China's state-run banking system, collapsed six months later as economic growth slowed and businesses struggled. Today, Fan said he and about 100 other depositors in Hunan Bofeng Asset Management Ltd. protest several times each week outside state banks and government offices, demanding their money back.

"The security people at the bank hit us," said Fan, 50. "The police ask us to go home and wait."

Thousands of Chinese savers like Fan who entrusted money to an informal finance industry that operates with little government oversight are suffering painful losses as borrowers default and real estate and other ventures fail.

Beijing allowed underground finance to flourish over the past decade to support entrepreneurs who generate jobs and wealth but get little credit from state banks. Communist leaders reaped the benefits of a thriving private sector without tackling the political challenge of giving entrepreneurs more access to an official financial system supports government companies.

Now, as losses rise, Beijing faces political tension and pressure to help investors recover their money.

"Many investors don't realize the risk until something goes wrong," said Guo Tianyong, director of the Banking Research Center at Central University of Finance and Economics in Beijing.

The industry's popularity reflects the Chinese public's urgent search for an alternative to low interest paid by banks, which has driven repeated bouts of boom-and-bust speculation in real estate and other assets. It propelled the flood of money from novice investors that fueled this year's explosive rise of Chinese stock prices, which peaked in June and have plunged since then.

One portion of informal finance is allowed by Chinese law: small loans from individuals to entrepreneurs. For a fee, brokers put borrowers in touch with small savers. They provided trillions of yuan (hundreds of billions of dollars) that supported the growth of Chinese private business.

The status of other activities is murkier. Some entities operating under names such as "investment guarantee fund" act like banks, raising money from depositors to lend, invest or speculate in stocks or gold. They promise two times or more the interest paid by banks.

Regulators have tried to keep official banks separate from the underground industry, but complaints in Changsha that Bofeng was recommended by employees of Bank of China and another state-owned lender, Industrial & Commercial Bank of China Ltd., or ICBC, highlight the tangled connections between the two sides.

"I went to deposit money in the bank and the bank manager recommended this to me," said an ICBC customer, Sheng Weimin, a 48-year-old engineer for an aviation company. He put 100,000 yuan ($16,000) into Bofeng in January 2014.

Fan, the engineer, said he got similar advice at Bank of China to put money into one-year Bofeng contracts that promised 7 percent annual interest — double the rate at state banks.

"There was no talk about risk," said Fan, who earns 4,000 yuan ($625) per month. "The counter staff at Bank of China said anybody who still uses certificates of deposit is a fool."

Bofeng raised 400 to 500 million yuan ($65 million to $80 million) by selling "trust products" to several hundred investors, according to the official Xinhua News Agency. It cited local authorities as saying the company was not authorized to do so.

Where that money went is unclear. Bofeng's website says the company is an investor and asset manager. But the Web portal Sina.com reported it also traded stocks and made high-interest loans to real estate and other businesses.

Strains on the industry worsened as growth in the world's second-largest economy tumbled to a two-decade low of 7.4 percent last year, barely half of 2007's high of 14.2 percent. It is due to decline further as communist leaders try to steer China toward self-sustaining growth based on domestic consumption, replacing a worn-out model driven by exports and investment.

Two farmers killed themselves after losing their savings in a failed finance company in rural Xiping County in the central province of Henan, according to the Beijing Times newspaper. It said the chairman of Haochen Investment Guarantee Co. was detained while police investigate possible "illegal fundraising."

Such a charge can be applied to an individual who receives more than 200,000 yuan ($32,000) of informal loans or causes losses to lenders of 100,000 yuan ($16,000), according to a 2013 document issued by China's supreme court. Enterprises can face charges if they receive 1 million yuan ($160,000) or cause losses of 2.5 million yuan ($400,000).

Depositors in Bofeng said they heard the founder, Deng Lin, was detained by police but they have yet to receive word on its status.

An employee of the Changsha city government propaganda office, who would give only his surname, Fang, confirmed police are investigating Bofeng but declined to give other details. He said investors would be informed once the investigation is completed.

Asked whether Bank of China staff had sold Bofeng financial products, a spokeswoman for the bank's Changsha branch, who would give only her surname, Zhou, said, "We have not signed a franchise agreement with Bofeng." She repeated that when asked whether Bofeng products ever had been sold in Bank of China.

"Bank of China is fully cooperating with the investigation and will fight to keep investors' losses to a minimum," Zhou said.

A spokesman for ICBC, Wang Zhenning, declined to comment.

Elsewhere, grifters have taken advantage of the industry's popularity to fleece investors.

In Shanghai, operators of a phony finance company disappeared with 100 million yuan ($16 million) from mostly elderly investors who were promised annual returns of 36 percent, according to the Shanghai Morning Post newspaper.

Chinese lawmakers are considering legal changes to curb misconduct, according to Xinhua.

"Underground banks, which run without financial supervision, not only threaten the economy and financial security but also encourage smuggling, money laundering and state assets embezzlement," the agency said in a report in May.

The pain is politically thorny for the Communist Party because those hurt often are entrepreneurs and professionals who have benefited from its market-style economic reforms and should be a pillar of support for one-party rule.

Deng Mei, a 29-year-old employee of an electronics company in Changsha, said her family deposited money in Bofeng starting in 2011 using annual contracts bought from an ICBC branch. Last year, her family put their savings of 250,000 yuan ($40,000) into new contracts that promised 7 to 8 percent interest.

The first sign of trouble was a mobile phone message Dec. 17 inviting her join a protest at an ICBC branch.

"I took a day off, went there and found a lot of victims like me," Deng said.

Sheng, the aviation engineer, said some depositors wanted to sue ICBC but a lawyer told them they would lose because their contracts were signed only by Bofeng, not the bank.

"At least there should be someone to give us an official answer to tell us when we get part of the money," said Sheng. "I ask the bank staff and always am told, 'It is being processed, wait.' "